Capital gains on development right transfer fail where no ascertainable cost of acquisition exists under the tax computation scheme.

The right to construct additional floors under the Development Control Regulation, 1991 was treated as a distinct capital asset, but it had no ascertainable cost of acquisition in the assessee's hands because it arose from the regulatory scheme itself. As the asset did not fall within the specific assets covered by section 55(2)(a) of the Income-tax Act, 1961, the deeming of nil cost did not apply. Applying the principle that capital gains computation under section 45 can operate only where a cost can be envisaged, the computation provisions failed, and the receipt was held not chargeable as long-term capital gain.

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Issues: Whether the amount received for assigning the right to construct additional floors under the Development Control Regulation, 1991 was chargeable to tax as long-term capital gain.

Analysis: The right to construct additional floors created by the Development Control Regulation, 1991 was treated as a distinct capital asset. However, the Tribunal held that this right was conferred by the regulatory scheme itself and had no ascertainable cost of acquisition in the hands of the assessee. The asset did not fall within the specific assets covered by section 55(2)(a) of the Income-tax Act, 1961, so the deeming of cost at nil did not apply. Applying the principle that section 45 applies only where the asset is one in respect of which a cost can be envisaged, the computation provisions were held to fail.

Conclusion: The receipt was not chargeable as long-term capital gain and the addition was deleted in favour of the assessee.

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